WilliamSpain

The 4-0 vote, with one commissioner abstaining, removed the last significant roadblock to a Big Tobacco combo that had been dogged by antitrust concerns virtually from the moment it was announced.

A combined company, to be known as Reynolds American, would have about a 31 percent market share. It and Altria
MO, +2.66%
unit Philip Morris would together control over 80 percent of the U.S. market and have enormous leverage over distributors.

In its vote, the Commission apparently overrode a staff recommendation - reported earlier this month -- that it reject the merger as anticompetitive.

The Commission said in a statement that while the merger would combine two of the larger cigarette marketers in the country, it does not believe that the transaction is likely to substantially lessen competition.

Underlying its decision was the fact that Brown & Williamson "plays an increasingly minor role in the U.S. cigarette market" and that there is no market in which, nor any brands for which, the two companies are each others' closest competitors.

The merger will still need approval from the Securities and Exchange Commission and RJR shareholders.

Earlier Tuesday, RJR said it had a favorable ruling from the Internal Revenue Service on the proposed merger.

After the bell, RJR
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said in a written release that it had received private-letter rulings from the IRS confirming that the merger will be tax-free to RJR shareholders and Brown & Williamson parent British American Tobacco
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The new company will have 150 million shares outstanding; British American holders will get 32 percent and RJR holders will get 58 percent.

The new company will acquire Lane Limited, which makes cigars, pipe tobacco and roll-your-own kits along with distributing Dunhill brand tobacco products, for $400 million in cash from BAT.

"We estimate the combination of the companies will generate at least $500 million in synergies once full integration is complete, which we expect will be about 18 to 24 months after the deal closes," RJR CEO Andrew J. Schindler said in a company statement

The companies expect the transaction to close by the end of July.

"It's a great deal for everybody and will have been worth the wait," said British American Tobacco Chairman Martin Broughton.

Shares of RJR added 2.4 percent to $65.90 at the close Tuesday after skipping to a 52-week high of $68.25 earlier in the session while British American gained 1 percent to $30.77. Altria added 9 cents to $47.83.

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